The Federal Reserve uses which type of policy to pursue its dual mandate?

The Federal Reserve employs monetary policy to pursue its dual mandate, which consists of promoting maximum employment and stabilizing prices. Monetary policy involves the management of the money supply and interest rates to influence economic activity.

By adjusting interest rates, the Federal Reserve can encourage or discourage borrowing and spending. For instance, lowering interest rates can stimulate economic growth by making loans cheaper, which can lead to increased employment. Conversely, raising interest rates can be a tool to combat inflation, helping to stabilize prices.

This approach is distinct from fiscal policy, which involves government spending and tax decisions made by Congress and the executive branch. Since the Federal Reserve is an independent central bank, it focuses solely on monetary policy to fulfill its mandate, rather than engaging directly in governmental fiscal actions or trade negotiations.